Wednesday
July 26, 2017

This Is the Worst ‘Housing Drought’ Ever

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This Is the Worst ‘Housing Drought’ Ever

The number of homes for sale is at the lowest level on record, according to the National Association of REALTORS®, who began tracking inventory 18 years ago. That means many home buyers likely will find fewer options this spring, and the homes that are being listed tend to sell fast and at a premium.

Read more: Home Sales Drop Amid Inventory, Affordability Issues

The lack of new-home supply is one culprit. Housing starts are only at about 75 percent of their historical average. Builders are focusing on pricier segments of move-up buyers, leaving a big void in the demand for lower cost homes that appeal to first-time home buyers. Builders blame the higher costs for land, labor, and materials as forcing them to concentrate on the higher end of the market.

Builders aren’t the only ones to blame, however. Investors purchased about 4 million distressed properties—mostly in the lower-priced starter home segment—during the housing crash. They have been holding onto these properties, continuing to rent them out rather than selling.

"Investors came in to get that cash flow, and the cash flow remains very positive," says Lawrence Yun, chief economist at the National Association of REALTORS®. "The price appreciation is just extra gravy that they're witnessing, and they're saying they're going to ride out this price increase."

That strong price appreciation also may be curtailing home supplies. The more a local market has recovered, the larger the drop in inventory it's experiencing, according to a new survey by Trulia.

"If you have a lot of equity in your home, that could be great to use to buy another one, but if that other home you might buy is that much more expensive than it was last year, you may stay put and you may renovate instead," says Ralph McLaughlin, Trulia’s chief economist.

As such, the housing crunch likely isn’t going to let up anytime soon. Some areas are seeing it worse than others. For example, home sales in Southern California in February were 14 percent lower than the average, according to CoreLogic in reviewing 30 years of data.

“San Bernardino County, which has the region’s lowest median sale price and entices many first-time buyers and others priced out of coastal markets, was the only Southern California county to post year-over-year increase in sales this February,” notes Andrew LePage, research analyst at CoreLogic.

Source: “This Is What’s Behind the Severe Housing Drought,” CNBC (March 23, 2017)